Cost and management accounting

1. Managerial Accounting
and The Business
Environment
Prepared & Edited by
Nazim Uddin
Assistant Professor
National Institute of Textile Engineering & Research

2. Accounting
The
Language
of
Business

3. Accounting
 Provides information to external parties
 Stockholders, creditors, regulators
 Estimates the cost of products produced
and services provided
 Provides information to internal decision
makers
 To plan, control, and evaluate performance

4. Types of Accounting
Financial Accounting
 Meets external
information needs
 Complies with GAAP
Management Accounting
 Meets internal information
needs
 Provides product costing
information
Cost Accounting
 Provides information for both management accounting and
financial accounting
 Measures and reports financial and nonfinancial information relating
to the cost of acquiring or utilizing resources in an organization
 Includes those parts of both management accounting & financial
accounting in which cost information is collected and analyzed

5. Managerial Accounting, Cost Accounting
and Financial Accounting
Managerial
Accounting
measures and
reports financial
and nonfinancial
information that
helps managers
make decisions to
fulfill the goals of
an organization.
Financial
Accounting
measures and
records business
transactions and
prepares and
provides financial
statements
to external
parties.
Cost Accounting
measures and
reports financial
and nonfinancial
information to
managers relating
to the cost of
acquiring or
utilizing resources
in an organization.

6. Relationship of Financial,
Management, and Cost Accounting
FINANCIAL
ACCOUNTING
MANAGEMENT
ACCOUNTING
COST
ACCOUNTING

7.  Managerial Accounting measures and reports
financial and nonfinancial information that
helps managers make decisions to fulfill the
goals of an organization.
 Managers use management accounting
information to choose, communicate, and
implement strategy.
 They also use management accounting
information to coordinate product design,
production, and marketing decisions.
 Management accounting focuses on internal
reporting.
MANAGERIAL ACCOUNTING

8. Activities Include:
 Explaining manufacturing and
nonmanufacturing costs and how they are
reported in the financial statements
 Computing the cost of providing a service
or manufacturing a product
 Determining the behavior of costs and
expenses as activity levels change
 Analyzing cost-volume profit relationships
within a company
MANAGERIAL ACCOUNTING

9. Activities Include (continued):
 Assisting management in profit planning and
budgeting
 Providing a basis for controlling costs and
expenses by comparing actual results with
planned objectives and standard costs
 Accumulating and presenting relevant data for
management decision making
MANAGERIAL ACCOUNTING

10. Comparison of Financial and Managerial
Accounting
Financial Managerial
Accounting Accounting
1. Users Reports to those outside Reports to those inside
the organization the organization
2. Time focus Emphasis on past activities Emphasis on future decisions
3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Summarized data for Detailed data by
the entire organization segments of an organization
6. Requirements Must follow Need not follow
GAAP GAAP
Mandatory Not mandatory
1. Users
2. Time Focus
3. Verifiability vs.
Relevance
4. Precision vs.
Timeliness
5. Subject
6. Requirement

11. Work of Management
Planning
Controlling
Directing and
Motivating

12. The Changing Business Environment
A more competitive
environment emphasizing:
 Global competition
 Lower prices and costs
 Higher quality products
 More product choices
Business environment
changes in the past
twenty years

13. The Changing Business Environment
Just-In-Time
Total Quality
Management
Process Reengineering
Theory of Constraints
New tools for
managers!

14. Just-in-Time (JIT) Systems
Receive
customer
orders.
Schedule
production.
Receive materials
just in time for
production.
Complete parts
just in time for
assembly into products.
Complete products
just in time to
ship customers.

15. More rapid
response to
customer orders
Less warehouse
space needed
Reduced
inventory
costs
Greater
customer
satisfaction
Just-in-Time (JIT)
Higher quality
products
Zero
defects

16. Do we need
to change
the plan?
Where are we?
Where do we want to go?
How do
we start?
How are we doing?
Check
Plan
Act Do
is
Total Quality Management (TQM)
Benchmarking
Continuous
Improvement

17. Process Reengineering
A business process
is diagrammed
in detail.
The process is
redesigned to include
only those steps that make
our product more valuable.
Every step in
the business
process must
be justified.

18. Process Reengineering
A business process
is diagrammed
in detail.
The process is
redesigned to include
only those steps that make
our product more valuable.
Every step in
the business
process must
be justified.
Anticipated results:
 Process is simplified.
 Process is completed
in less time.
 Costs are reduced.
 Opportunities for
errors are reduced.

19. Theory of Constraints (TOC)
A sequential process of identifying and
removing constraints in a system.
Restrictions or barriers that impede
progress toward an objective

20. Corporate Organization Chart
Purchasing Personnel Vice President
Operations
Treasurer Controller
Chief Financial
Officer
President
Board of Directors
Organizational Structure
An organization is a group of people
united for a common purpose.

21. Decentralization
Delegation of decision-making authority
throughout an organization.
Corporate Organization Chart
Purchasing Personnel Vice President
Operations
Treasurer Controller
Chief Financial
Officer
President
Board of Directors

22. Line and Staff Relationships
Line positions are
directly related to
achievement of the
basic objectives of an
organization.
 Example: Production
supervisors in a
manufacturing plant.
Staff positions support
and assist line
positions.
 Example: Cost
accountants in the
manufacturing plant.

23. The Chief Financial Officer (CFO)
The CFO is:
 A member of top management.
 Responsible for providing timely and relevant
data for planning and control activities.
 Responsible for external financial reporting.

24. Questions